Traverse City Record-Eagle


February 19, 2014

Detroit readying blueprint for bankruptcy exit

DETROIT (AP) — Detroit's creditors and residents this week are expected to get their first official glimpse of the road out of bankruptcy, although fights and tinkering over many of its most contentious elements likely will continue.

As early as Wednesday, state-appointed emergency manager Kevyn Orr could file to the bankruptcy court his proposal for restructuring the city's debt. The so-called plan of adjustment, due by March 1, is a blueprint of sorts for Detroit, which is undergoing the largest municipal bankruptcy in U.S. history.

"The numbers may change dramatically after this plan is filed," said Wayne State University law professor Laura Bartell. "... They'll keep amending it until they feel they've reached what they need."

Under the bankruptcy process, scores of lawyers representing all sides — city unions, retirees, two pension systems, banks, bondholders and other creditors — all come before a federal judge who has appointed another judge to mediate and hammer out deals that still can get tossed back for more fine-tuning.

The restructuring plan, a 99-page draft of which The Associated Press obtained last month, reflects that complexity. It calls for retirees and pensioners to receive $4.3 billion in payments and bondholders about $1.1 billion during the next 40 years. That would leave a surplus of nearly $336 million for the bankrupt city, which has an estimated debt of at least $18 billion.

Also included is millions of dollars promised by foundations, the state and the Detroit Institute of Arts to prevent any possible sale of city-owned pieces in the museum to bolster at-risk pensions.

The plan will be accompanied by a disclosure statement, which outlines the level of reinvestment, including municipal services, planned during the next 10 years.

The pensions are among the most contentious aspects of the restructuring plan. Judge Gerald Rosen, the chief mediator between the city and its creditors, took the unusual move of asking foundations and others to raise $500 million to protect the art while assisting the pensioners, who nonetheless are expected to lose some benefits.

Text Only